The matters discussed in this Annual Report on Form 10-K include "forward-looking statements" about the plans, strategies, objectives, goals or expectations of Spartan Stores, Inc. (together with its subsidiaries, "Spartan Stores"). These forward-looking statements are identifiable by words or phrases indicating that Spartan Stores or its management "expects," "anticipates," "projects," "plans," "believes," "estimates," "intends," is "forecasting," "optimistic" or "confident" or has "goals," "objectives" or "strategies" that a particular occurrence "will," "may," "could," "should" or "will likely" result or that a particular event "will," "may," "could," "should", "is targeted" or "will likely" occur in the future, that the "trend" is toward a particular result or occurrence, or similarly stated expectations. Accounting estimates, such as those described under the heading "Critical Accounting Policies" in Item 7 of this Annual Report on Form 10-K, are inherently forward- looking. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report.

          In addition to other risks and uncertainties described in connection with the forward-looking statements contained in this Annual Report and our other periodic reports filed with the Securities and Exchange Commission, there are many important factors that could cause actual results to differ materially, including our ability to:

          These factors will be affected by changes in economic conditions generally or in the markets and geographic areas that we serve, adverse effects of the changing food and distribution industries and other factors including, among others, those discussed below. Programs, plans, strategies, objectives and goals that are fully or partially within our control are subject to change.

          Anticipated future sales are subject to competitive pressures from many sources. Our Grocery Distribution and Retail businesses compete with many warehouse discount stores, supermarkets, pharmacies, other distributors and product manufacturers. Future sales will be dependent on the number of retail stores that we own and operate, competitive pressures in the retail industry generally and our geographic markets specifically, and our ability to implement effective new marketing and merchandising programs. Competitive pressures in these and other business segments may result in unexpected reductions in sales volumes, product prices or service fees.

          Our operating and administrative expenses may be adversely affected by unexpected costs associated with, among other factors:

          Our operating and administrative expenses could also be adversely affected by changes in our sales mix. Our ongoing cost reduction initiatives and changes in our marketing and merchandising programs may not be as successful as we anticipate. Acts of terrorism, sabotage or war have in the past and may in the future result in considerable economic and political uncertainties that could have adverse effects on consumer buying behavior. Fuel costs, electronic information or payment systems, shipping and transportation, product imports and other factors affecting our company and the grocery industry generally may also have an adverse impact on our operating results.

          Our future interest expense and income also may differ from current expectations, depending upon, among other factors: the amount of borrowings; changes in our borrowing arrangements and agreements; and changes in the interest rate environment. The availability of our senior secured revolving credit facility depends on compliance with the terms of the credit facility.

          This section is intended to provide meaningful cautionary statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. This should not be construed as a complete list of all of the economic, competitive, governmental, technological and other factors that could adversely affect our expected consolidated financial position, results of operations or liquidity. We undertake no obligation to update or revise our forward-looking statements to reflect developments that occur or information that we obtain after the date of this Annual Report.

PART I

Overview

          Spartan Stores is a leading regional grocery distributor and grocery retailer, operating principally in Michigan and Ohio. We operate two primary business segments: Grocery Distribution and Retail. We are the tenth largest wholesale distributor to grocery stores in the United States and the largest wholesale distributor to grocery stores in Michigan. Our distribution and retail operations hold a combined #1 or #2 market share in many of the key Michigan markets we serve. For the fiscal year ended March 26, 2005 ("fiscal 2005"), we generated net sales of $2.0 billion.

          Established in 1917 as a cooperative grocery distributor, Spartan Stores converted to a for-profit business corporation in 1973. In January 1999, we began to acquire retail supermarkets in our focused geographic regions. In August 2000, our common stock became listed on the NASDAQ Stock Market under the symbol "SPTN." Today, with approximately 6,300 employees, Spartan Stores distributes a wide variety of products to over 300 independent grocery stores and operates 54 conventional supermarkets and 20 deep-discount food and drug stores.

          In fiscal 2004, Spartan Stores established four key management priorities that were central to rebuilding and stabilizing the existing business. These priorities were:

          We believe significant progress has been made towards achieving these short-term priorities in fiscal 2004 and 2005 and that we are now focused on the longer-term strategy of the Company, including establishing a well differentiated market offering for Grocery Distribution and Retail, and additional strategies designed to create value for our shareholders and business partners as outlined in Item 7 below.

          Grocery Distribution Segment

          Our Grocery Distribution segment provides a selection of approximately 40,000 stock-keeping units (SKU's), including dry groceries, produce, dairy products, meat, deli, bakery, frozen food, seafood, floral products, general merchandise, pharmacy, and health and beauty care items to over 300 independent grocery stores and our 74 corporate owned stores. In addition, we offer approximately 2,000 private label grocery and general merchandise items. Total revenues from our Grocery Distribution segment, including shipments to our corporate owned stores, were $1.6 billion for fiscal 2005.

          Customers. Our Grocery Distribution segment supplies a diverse group of independent grocery store operators that range from a single store to supermarket chains with as many as 21 stores and our corporate owned stores. Pricing to our customers is generally based upon a "cost plus" model for grocery, frozen, dairy, pharmacy and health and beauty care items and a "variable mark-up" model for meat, deli, bakery, produce, seafood, floral and general merchandise products.

          Our Grocery Distribution customer base is very diverse, with no single customer exceeding 7% of consolidated net sales. Our five largest Grocery Distribution customers (excluding corporate owned stores) accounted for approximately 17% of our fiscal 2005 consolidated net sales. In addition, approximately 20% of consolidated net sales are covered under supply agreements with our Grocery Distribution customers.

          Distribution Functions. Our Grocery Distribution business utilizes approximately 1.8 million square feet of warehouse, distribution and office space. We supply our independent grocery distribution customers and our corporate owned stores from our distribution centers located in Grand Rapids and Plymouth, Michigan. We believe that our distribution facilities are strategically located to efficiently serve our customers. We are continually evaluating our inventory movement and assigning SKU's to appropriate facilities within our distribution centers to

reduce the time required to pick products. During fiscal 2005, we implemented a specialty item warehouse to efficiently distribute approximately 2,000 specialty items, line extensions and slower moving items. Through-put (defined as cases shipped per labor hour) increased in comparison to fiscal 2004 by 2.2% in our Grand Rapids grocery warehouse, 4.1% in our Plymouth grocery warehouse and 5.3% in our Grand Rapids general merchandise warehouse. This is the third consecutive year of improved productivity. As we make continuous progress towards our expected productivity goals, we would expect these increases to moderate in future years.

          To supply our Grocery Distribution customers, we operate a fleet of approximately 100 tractors, 200 conventional trailers and 175 refrigerated trailers, substantially all of which are leased. In fiscal 2004, we upgraded the on-board transportation management systems on our Grand Rapids fleet of tractors, or approximately 64 of our tractors. These systems have allowed us to reduce idle time and have helped us control costs. We expect to upgrade the on-board computers on the remainder of the fleet during fiscal 2006. This should allow us to further reduce costs and vehicle idle time.

          Additional Services. We also offer and provide many of our independent grocery distribution customers with value-added services, including:

Retail Segment

          Our Retail segment operates 54 retail supermarkets and 20 deep-discount food and drug stores predominantly in midsize metropolitan, tourist and lake communities of Michigan and Ohio. Our retail supermarkets are operated under the banners Family Fare Supermarkets and Glen's Markets and our 20 deep-discount food and drug stores operate under the banner The Pharm.

          We believe our retail supermarkets maintain a #1 or #2 market share position in many of the Michigan markets they serve. We believe that our strong market share positions result from our distinct "neighborhood market" focus and the favorable name recognition of our banners. Our neighborhood market strategy distinguishes our stores from supercenters and limited assortment stores by emphasizing convenient locations, demographically targeted merchandise selections, strong perishables offerings, customer service, value pricing and community involvement.

          Our 54 retail supermarkets typically offer dry groceries, produce, dairy products, meat, frozen food, seafood, floral products, general merchandise, beverages, tobacco products, health and beauty care products, delicatessen items and bakery goods. Twenty-eight of our supermarkets also offer pharmacy facilities. In addition to nationally advertised products, the stores carry private label items, including our Spartan brand, and three private label brands that result from our strategic relationship with Topco Associates LLC: Top Care, a health and beauty care brand label, Valu Time, a value brand label, and Full Circle, a natural and organic brand label. These private label items provide above-average retail margins and we believe they help generate increased customer loyalty. See "Merchandising and Marketing-Corporate Brands." Our retail supermarkets range in size from approximately 20,000 to 62,000 total square feet and average approximately 3 8,000 total square feet per store.

          Our 20 deep-discount food and drug stores, which operate under the banner The Pharm, offer a unique combination of a full-service pharmacy, general merchandise products and basic food offerings. These stores operate under a deep discount format that emphasizes everyday low prices that are very competitive with supercenter offerings and are less than those of a traditional supermarket or drug store. The Pharm stores range in size from approximately 17,000 to 44,000 total square feet and average approximately 29,000 total square feet per store.

          During fiscal 2005, we opened 3 fuel centers in Michigan operated under the banners Family Fare Quick Stop and Glen's Quick Stop. We are planning to open several additional fuel centers over the next two years. These fuel centers offer refueling services and in the adjacent convenience store, a limited variety of immediately consumable products. Our prototypical Quick Stop stores will be approximately 900 square feet in size and will be located adjacent to our supermarkets. We also anticipate including fuel centers with any newly constructed stores, where possible.

          We acquired our stores as a result of six acquisitions from January 1999 to March 2001. The following chart details the changes in the number of our retail stores over the last five years:

          Included in the above number of stores is one The Pharm store that we closed early in the first quarter of fiscal 2006.

          During fiscal 2005, we reset and/or performed limited remodels on 15 of our stores and began one major remodel, which was completed early in the first quarter of fiscal 2006. This brings the total number of stores that have been reset and/or remodeled in the last two years to 50. During fiscal 2006, we plan to reset and/or perform remodels on 10 to 15 additional stores, perform 1 major remodel/expansion and begin construction on 2 new stores. Capital expenditures, including remodeling, but excluding new stores, are expected to approximate $10 million to $15 million per year as we continually maintain and update our store base. We evaluate proposed retail projects based on demographics and competition within each market, and prioritize projects based on their expected returns on investment. We require projects to meet a targeted internal rate of return to be approved; however, we may undertake projects that do not meet this standard to the extent they represent required m aintenance or necessary infrastructure improvements. We believe that focusing on such measures provides us with an appropriate level of discipline in our capital expenditures process.

Operating Segment Financial Data

          More detailed information about our operating segments may be found in Note 11 to the consolidated financial statements included in Item 8, which is herein incorporated by reference. All of our sales and virtually all of our assets are in the United States of America.

Discontinued Operations

          Our former convenience distribution operations, insurance operations and certain of our retail, grocery distribution and real estate operations have been recorded as discontinued operations in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." Accordingly, for all years presented all information in this Annual Report on Form 10-K have been adjusted and the discontinued operations information is excluded, unless otherwise noted.

Convenience Distribution Operations

          Discontinued convenience distribution operations consists of the former operations of our subsidiaries: United Wholesale Grocery Company, L&L/Jiroch Distributing Company and J.F. Walker Company.

Insurance Operations

          We have approximately $4.0 million remaining in insurance reserves for open claims liabilities related to policies that were not ceded (transferred) to an unrelated third party at March 26, 2005. We will remain obligated under these policies until all claims are closed. We have retained an independent third party administrator to manage these claims.

Retail Operations

          Discontinued retail operations consist of 59 stores that were closed and/or sold during fiscal 2003 and fiscal 2004, including all former Food Town stores.

Grocery Distribution Operations

          Discontinued grocery distribution operations consist of the former operations of our Toledo, Ohio distribution operations that were consolidated into our Michigan facilities during the fourth quarter of fiscal 2003. Spartan Stores continues to distribute to its The Pharm stores in Ohio from its distribution facilities in Michigan.

Real Estate Operations

          Discontinued real estate operations include properties either held for sale or previously sold.

Marketing and Merchandising

          General. Our Grocery Distribution and Retail segments use combined marketing and merchandising departments to effectively leverage the use of category management principles. Our Grocery Distribution segment pursues incremental sales to existing and prospective customers by partnering with them to satisfy their consumers' needs. Our Retail segment's marketing and merchandising strategies are consumer driven programs in keeping with the implementation of improved category management practices.

          With the efficiencies created from combining these functions and by partnering with our vendors to develop more robust category management, we have been able to more effectively develop and roll-out our merchandising programs, which has aided our ability to increase our sales and earnings. We have and will look to expand these offerings and partner with our independent customers over time to continue to realize incremental benefits.

          As we expand our service offerings, we believe that we differentiate ourselves from our competitors by offering a full set of services, from our specialty warehouse in our Grocery Distribution segment to the addition of fuel centers and pharmacies in our "neighborhood market" retail stores. In addition, during fiscal 2005, we completed the design of our future prototype store that displays our best practices in merchandising that can be used internally and shared with our independent customers.

          Corporate Brands. We currently market and distribute approximately 2,000 private label brand items including our Spartan brand, and three private label brands that result from our strategic relationship with Topco Associates LLC: Top Care, a health and beauty care brand label, Valu Time, a value brand label, and Full Circle, a natural and organic brand label. The Top Care and Valu Time brands will replace our Pharm and Home Harvest brands, respectively.

          During fiscal 2004, we began the process of reenergizing our Spartan brand and rolled out a redesigned label and many new product categories. The redesigned label is currently being used on a majority of our private label products, with continued conversion expected until all products have been converted in fiscal 2006. We believe the new label has been well received by consumers and that this brand is one of the most valuable strategic assets of the Company.

Competition

          Our Retail and Grocery Distribution segments operate in highly competitive markets, which typically result in low profit margins for the industry as a whole. Our Retail and Grocery Distribution segments compete with, among others, regional and national grocery distributors, independently owned retail grocery stores, large chain stores that have integrated wholesale and retail operations, mass merchandisers, limited assortment stores and wholesale membership clubs, some of whom have greater resources than we do. The principal competitive factors in the retail grocery business include the location and image of the store; the price, quality and variety of the products; and the quality and consistency of service.

          We believe we have developed and implemented strategies and processes that allow us to remain competitive in our Retail segment. We monitor planned store openings by our competitors and have established proactive strategies to respond to new competition both before and after the competitive store opening. Strategies to combat competition vary based on many factors, such as the competitor's format, strengths, weaknesses, pricing and sales focus. During the past three fiscal years, eight competitor supercenters opened in markets in which we operate corporate owned stores and an additional six supercenter openings are expected to occur during fiscal 2006.

          The primary competitive factors in the distribution business include price, product quality, variety and service. We believe we have developed an internal set of measures that allow us to monitor our performance against these factors, compare our performance against our competitors and make improvements as appropriate. We believe our overall service level, defined as actual units shipped divided by actual units ordered, is among industry leading performance.

Seasonality

          Throughout the fiscal year our Retail and Grocery Distribution segment's sales and operating performance vary with seasonality. Our first and fourth quarters are typically our slowest sales quarters and therefore operating results are generally lower during these two quarters. Additionally, these two quarters can be affected based on the timing of the Easter holiday, which is a strong sales week. All quarters are 12 weeks, except for our third quarter, which is 16 weeks and includes the Thanksgiving and Christmas holidays. Most of our northern Michigan stores are dependent on tourism and therefore, most affected by seasons and weather patterns, including, but not limited to, the amount and timing of snowfall during the winter months and the range of temperature during the summer months.

Suppliers

          We purchase products from a large number of national, regional and local suppliers of name brand and private label merchandise. We have not encountered any material difficulty in procuring or maintaining an adequate level of products to serve our customers. No single supplier accounts for more than 15% of our purchases. We continue to develop strategic relationships with key suppliers. We believe this will prove valuable in the development of enhanced promotional programs and consumer value perceptions.

Intellectual Property

          We own valuable intellectual property, including trademarks and other proprietary information, some of which, including "Spartan," "Family Fare," "Glen's," "The Pharm" and other related marks, are of material importance to our business.

Technology

          We invest in technology as a means of maximizing the efficiency of our operations and improving service to our customers. Our focus during the last year has been to refine our reporting, business processes and data integrity to provide a base for continuous improvement and upgrading of our technology.

          Supply Chain. During fiscal 2005, we completed the majority of the upgrade of our supply chain systems for Global Trading Number and Sunrise 2005 support. We upgraded our supply chain systems to support a specialty warehouse for our retail customers, as discussed in "Grocery Distribution Segment - Distribution Functions." We intend to upgrade our warehouse management systems for voice selection technology in fiscal 2006.

          Retail Systems. During fiscal 2005, we installed eight additional "self-checkout" systems in our retail supermarkets, with additional installations planned for fiscal 2006. For the opening of our first three fuel centers, we developed the required support for fuel operations in our Point of Sale, Electronic Payments and other retail reporting systems. We completed the deployment of EDI based receiving in our corporate owned stores and began testing of several types of consumer kiosks in our retail supermarkets. We also installed a new central hosting system for pricing and product authorization.

          Financial Systems. We upgraded our financial systems software to the current vendor supported version and developed a variety of improved reporting systems.

          Information Technology. We continued to improve our business continuity and data security capabilities.

Subsidiaries

          Our Grocery Distribution segment consists primarily of our wholly owned subsidiary, Spartan Stores Distribution, LLC. We operate our Retail segment primarily through two wholly owned subsidiaries, Family Fare, LLC and Seaway Food Town, Inc. and their respective subsidiaries.

Associates

          We currently employ approximately 6,300 associates, 3,600 of which are full-time and 2,700 of which are part-time.

          Unions represent approximately 21% of our associates. Contracts covering approximately 620 distribution center and transportation associates expire in October 2006 and contracts covering approximately 500 retail associates expire between June 2005 and June 2006. A contract covering an additional 170 distribution center and transportation associates is currently under negotiation. The parties have agreed to extend the agreement beyond its April 2005 expiration date to allow additional time for negotiations. Either party may terminate this extension agreement with 7 days written notice. We believe that an amicable resolution to the negotiation will occur; however, in the event the parties are unable to reach an agreement, we have developed a contingency plan that will enable us to continue to operate the facility. Excluding the associates under the aforementioned contract extension, less than 1% of our associates and approximately 2% of our union associates are represented by contracts that expire by March 2006.

          We consider our relations with our union and non-union associates to be good and have not had any material work stoppages in the last five years.

Regulation

          We are subject to federal, state and local laws and regulations covering the purchase, handling, sale and transportation of our products. Several of our products are subject to federal Food and Drug Administration regulation. We believe that we are in substantial compliance with all Food and Drug Administration and other federal, state and local laws and regulations governing our businesses.

Forward-Looking Statements

          The matters discussed in this Item 1 include forward-looking statements. See "Forward-Looking Statements" at the beginning of this Annual Report on Form 10-K.

Available Information

          The address of our web site is www.spartanstores.com. We make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports (and amendments to those reports) filed or furnished pursuant to Section 13(a) of the Securities Exchange Act available on our web site as soon as reasonably practicable after we electronically file or furnish such materials with the Securities and Exchange Commission. Interested persons can view such materials without charge by clicking on "Investor Information" and

then "SEC Filings" on our web site. Spartan Stores is an "accelerated filer" within the meaning of Rule 12b-2 under the Securities Exchange Act.

Grocery Distribution Segment Real Estate

          The following table lists the location, approximate size and ownership of the facilities used in our Grocery Distribution segment.

Retail Segment Real Estate

          The following table lists the retail banner, number of stores, geographic region, approximate total square footage under the banner, average store size (in square feet) and ownership of our retail supermarkets and deep-discount food and drug stores:

          The following table lists the retail banner, number of stores, geographic region, approximate total square footage under the banner, average store size (in square feet) and ownership of our fuel centers:

          No matters were submitted to a vote of Spartan Stores' shareholders during the fourth quarter of fiscal 2005 through the solicitation of proxies or otherwise.

PART II

          Spartan Stores common stock is traded on the National Market System of the NASDAQ Stock Market under the trading symbol "SPTN."

          Stock sale prices are based on transactions reported on the NASDAQ Stock Market. Information on quarterly high and low sales prices for Spartan Stores' common stock appears in Note 12 to the consolidated financial statements and is incorporated herein by reference. At May 19, 2005 there were approximately 630 shareholders of record of Spartan Stores common stock.

          During fiscal 2003, 2004 and 2005, we did not pay any dividends. The payment of any future dividends will be determined by our board of directors. We anticipate that we will use any net earnings from our operations to repay debt and to acquire additional retail operations, and that we will not pay any dividends for the foreseeable future.

          Our credit facilities contain restrictions that do not allow us to pay future dividends or make a variety of other restricted payments. See the "Liquidity and Capital Resources" section of Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Item 7 below for a more detailed discussion of these restrictions, as well as Note 5 to the consolidated financial statements.

          The information required by Item 201(d) of Securities and Exchange Commission Regulation S-K is incorporated herein by reference from the table entitled "Equity Compensation Plans" in Spartan Stores' definitive proxy statement relating to its annual meeting of shareholders to be held in 2005.

(In thousands, except per share data)

          Spartan Stores is a leading regional grocery distributor and grocery retailer, operating principally in Michigan and Ohio.

          We currently operate two reportable business segments: Grocery Distribution and Retail. Our Grocery Distribution segment provides a full line of grocery, general merchandise, frozen and perishable items to over 300 independently owned grocery stores and 74 corporate owned stores. Our Retail segment operates 54 retail supermarkets in Michigan under the banners Family Fare Supermarkets and Glen's Markets and 20 deep-discount food and drug stores in Ohio and Michigan under the banner The Pharm. In fiscal 2005, we opened 3 fuel centers under the banners Family Fare Quick Stop and Glen's Quick Stop. Our retail supermarkets have a "neighborhood market" focus to distinguish them from supercenters and limited assortment stores. Our deep-discount food and drug stores offer a unique combination of full-service pharmacy, general merchandise products and basic food offerings.

          In fiscal 2004, as we embarked on the repositioning of the Company, we established four key management priorities we believed were central to our ability to refocus our organization on profitable growth. We have made significant progress towards achieving these short-term priorities, which has provided stability to our business and now allow us to focus on future growth. A summary of our priorities and results follows:

          In addition to these accomplishments, we also amended our credit facility, which included an interest rate reduction and facility increase. A portion of the funds made available under the amended facility were used to prepay the remaining $13.9 million due under the supplemental secured credit facility.

          Significant progress has been made towards achieving these short-term priorities in fiscal 2005. We are now focused on the longer-term strategy of the Company, including establishing a well-differentiated market offering for our Grocery Distribution and Retail segments, and additional strategies designed to create value for our shareholders, retailers and customers. We will continue to face competitive big-box store openings in fiscal 2006, and while we have developed strategies to combat these competitors, the impact of our strategies will affect our actual financial performance.

          Our focus for fiscal 2006 will be:

          The matters discussed in this Item 7 include forward-looking statements. See "Forward-Looking Statements" at the beginning of this Annual Report on Form 10-K.

Results of Operations

          The following table sets forth items from our Consolidated Statements of Operations as a percentage of net sales and the year-to-year percentage change in dollar amounts:

          Results of Continuing Operations for the Fiscal Year Ended March 26, 2005 Compared to the Fiscal Year Ended March 27, 2004

          Net Sales. Net sales decreased $11.8 million, or 0.6%, from $2,055.0 million in fiscal 2004 to $2,043.2 million in fiscal 2005.

          Net sales in our Grocery Distribution segment, after intercompany eliminations, decreased $11.8 million, or 1.0%, from $1,132.4 million to $1,120.6 million primarily due to the transition of two distribution customers to new suppliers of $15.4 million, a lower than anticipated conversion rate from the change in our deli and bakery program from a jointly managed program to a warehouse supported program of $21.5 million and lower other direct sales to customers of $8.3 million. These decreases were partially offset by new customer sales of $22.8 million, a shift in timing of the Easter holiday and increased prescription drug program sales.

          Net sales in our Retail segment were essentially flat at $922.6 million in fiscal 2004 and fiscal 2005. Comparable store sales increased by 0.7%. Sales increases at our supermarkets were offset by sales declines at our deep-discount food and drug stores and the sale of our joint venture in a retail store, which resulted in a sales decline of approximately $4.9 million.

          Comparable store sales at our supermarkets increased 2.4% despite four new supercenter store competitive openings that impacted sales for most of fiscal 2005. The increase includes 0.8% due to a change in the recording of bottle deposits as a liability when sold and an asset when returned, rather than a net reduction in sales as was done in previous fiscal years, as supermarkets typically receive more returns of bottles than originally sold. This change has no impact on reported gross margin dollars. We believe this revised reporting method better reflects the true sales performance of our stores. The remaining sales increases were due primarily to continued improvements in marketing, merchandising and operations, the shift in timing of the Easter holiday and contributions from new in-store pharmacies and fuel centers of 0.7%. These increases were partially offset by lower prescription sales at certain in-store pharmacies due to the United Auto Workers ("UAW") mail-order mandate.

          Comparable store sales at our The Pharm deep-discount food and drug stores decreased 5.7%. The sales decreases were primarily due to lower prescription sales as a result of the UAW mail-order mandate and the resulting effect on front-end sales. Also contributing to the decrease were the strong sales gains recorded in the prior year due to aggressive promotions and the cycling of customers from the previous year's Food Town store closings. On a two-year basis, which we believe more appropriately reflects the long-term effect of our retailing strategies, comparable store sales at our deep-discount food and drug stores increased 2.8%.

          During the past three fiscal years, eight competitor supercenters opened in markets where we operate corporate owned stores and an additional six supercenter openings are expected to occur during fiscal 2006. We believe that due to the new competitor supercenter openings being expansions of existing discount stores or in markets already served by a supercenter, our improved marketing and merchandising practices and the continued weakening of conventional food competitors will allow us to sustain our growth, but at rates closer to industry averages.

          Gross Margin. Gross margin represents sales less cost of goods sold, which include purchase costs and vendor allowances. Vendor allowances that relate to our buying and merchandising activities consist primarily of promotional allowances, which are generally allowances on purchased quantities and, to a lesser extent, slotting allowances, which are billed to vendors for our merchandising costs such as setting up warehouse infrastructure. Vendor allowances are recognized as a reduction in cost of goods sold when the product is sold. Lump sum payments received for multi-year contracts are amortized over the life of the contracts based on contractual terms.

          Gross margin increased by $11.2 million, or 3.0%, from $375.5 million to $386.7 million. As a percent of net sales, gross margin increased from 18.3% to 18.9%. The gross margin improvement was primarily due to improved buying practices resulting from our category management improvements at both segments, a $3.7 million non-cash inventory charge in the fourth quarter of fiscal 2004 related to the implementation of a stock ledger and margin management system and a $2.3 million favorable supply contract settlement in the third quarter of fiscal 2005 related to pricing on purchases during the past three years, including $0.6 million attributable to fiscal 2005.

          Selling, General and Administrative Expenses. SG&A expenses consist primarily of salaries and wages, employee benefits, warehousing costs, merchandising and marketing costs, store operating costs, equipment rental, depreciation and other administrative costs.

          SG&A expenses decreased $13.8 million, or 3.8%, from $362.9 million to $349.2 million, and were 17.1% of net sales compared to 17.7% last year. The decrease in SG&A is due to the following:

          These decreases are partially offset by increases in employee benefit and transportation costs, including the reinstatement of service credits for the cash balance pension plan during fiscal 2005 and increased fuel costs in our Grocery Distribution segment.

          Interest Expense. Interest expense decreased $3.8 million, or 29.1%, from $13.1 million to $9.3 million, and was 0.5% of net sales compared to 0.6% last year due to lower interest rates resulting from the amendment of our senior secured revolving credit facility ("credit facility") and the resulting repayment of the supplemental secured credit facility. See additional discussion in "Liquidity and Capital Resources," below. Total average borrowings decreased to $111.8 million from $174.6 million as a result of debt repayments primarily generated from the divestiture of non-core business activities and cash flow from operations.

          In accordance with Emerging Issues Task Force Issue No. 87-24, "Allocation of Interest to Discontinued Operations," interest was allocated to discontinued operations based on the interest on debt that was required to be repaid as a result of disposal transactions. Interest expense of $1.9 million was allocated to, and is included in, loss on discontinued operations in the Consolidated Statements of Operations for fiscal 2004. Interest expense is no longer allocated to discontinued operations as all related debt has been repaid as a result of the disposal of these operations.

          The weighted average interest rate decreased to 8.33% for fiscal 2005 from 8.77% for fiscal 2004.

          Debt Extinguishment. We recorded a non-cash pre-tax charge of $0.6 million and $8.8 million during the third quarters of fiscal 2005 and 2004 for unamortized bank fees associated with previous financing activities.

          Other, net. Other, net includes gains on sale of assets and interest income. Fiscal 2005 includes a $0.8 million gain recorded on the sale of our 65% ownership interest in a retail store to its former joint venture partner in the third quarter of fiscal 2005. We received total consideration of $4.5 million from the transaction that was used to reduce outstanding debt.

          Income Taxes. Companies are regularly audited by federal and state tax authorities, which may result in proposed assessments or adjustments. During the fourth quarter of fiscal 2005, the Internal Revenue Service concluded its audit of the fiscal 2001 through 2003 tax returns. As a result of the audit, we released $2.0 million in tax reserves that are no longer required with respect to these years, of which $1.3 million is reflected in continuing operations and reduced our effective tax rate to 30.4%. The remaining $0.7 million is included in the Loss from discontinued operations on the Consolidated Statements of Operations.

          Results of Continuing Operations for the Fiscal Year Ended March 27, 2004 Compared to the Fiscal Year Ended March 29, 2003

          Net Sales. Net sales increased $79.3 million, or 4.0%, from $1,975.7 million in fiscal 2003 to $2,055.0 million in fiscal 2004.

          Net sales in our Grocery Distribution segment, after intercompany eliminations, increased $37.2 million, or 3.4%, from $1,095.2 million in fiscal 2003 to $1,132.4 million in fiscal 2004. The increase resulted primarily from new customer sales of $38.9 million.

          Net sales in our Retail segment increased $42.1 million, or 4.8%, from $880.5 million to $922.6 million. Comparable-store sales increased by 3.2%. The sales increases were driven by improved merchandising and promotional programs driven by our focused category management efforts coupled with better operational excellence, sales from three stores open the entire fiscal year of $16.7 million, a shift in the Easter holiday from the fourth quarter of fiscal 2002 to the first quarter of fiscal 2004, the closure of our Food Town stores which transferred some business to select The Pharm locations and the closure of competing stores in three of our northern Michigan markets in the third quarter of fiscal 2004.

          Gross Margin. Gross margin increased by $12.0 million, or 3.3%, from $363.5 million to $375.5 million. As a percent of net sales, gross margin decreased from 18.4% to 18.3%. Gross margin in fiscal 2004 was negatively impacted by a $3.7 million (0.2% of net sales) inventory adjustment related to the implementation of a stock ledger inventory and margin management system.

          Selling, General and Administrative Expenses. SG&A expenses increased $8.8 million, or 2.5%, from $354.2 million to $362.9 million, and were 17.7% of net sales in fiscal 2004 compared to 17.9% in fiscal 2003. The change in SG&A is due to the following:

          The accrual of pension service and transition credits were reinstated for fiscal 2005, however, effective January 1, 2004, an amendment was made to our defined benefit plan, reducing service credits for certain participants.

          Interest Expense. Interest expense decreased $4.2 million, or 24.1%, from $17.3 million to $13.1 million, and was 0.6% of net sales in fiscal 2004 compared to 0.9% in fiscal 2003. Total average borrowings decreased to $174.6 million from $270.8 million as a result of debt repayments primarily generated from the divestiture of non-core business activities.

          Interest expense of $1.9 million and $8.6 million was allocated to, and is included in, loss on discontinued operations in the Consolidated Statements of Operations for fiscal 2004 and fiscal 2003, respectively. Interest expense allocated to discontinued operations decreased in fiscal 2004 due to the effect of debt paydowns as a result of the disposal of certain discontinued operations during the fiscal year.

          The decrease in interest expense from continuing operations was primarily due to the refinancing of our bank agreement during the third quarter and reductions in covenant waiver and compliance fees. Interest expense was $2.8 million lower during the fourth quarter of fiscal 2004 as compared to fiscal 2003. Fiscal 2003 also included a $0.7 million charge made in accordance with Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging Activities," which required us to recognize a portion of our interest rate swap exposure as interest expense. This expense had previously been included in accumulated other comprehensive income (loss) in the shareholders' equity section of the consolidated balance sheets.

          The weighted average interest rate decreased to 8.77% for fiscal 2004 from 9.59% for fiscal 2003.

          Debt Extinguishment. We recorded a non-cash pre-tax charge of $8.8 million during the third quarter of fiscal 2004 for unamortized bank fees associated with previous financing activities.

Discontinued Operations

          Convenience Distribution Operations. During the fourth quarter of fiscal 2004, we completed the sale of the operating assets of United Wholesale Grocery Company ("United"). Proceeds received on the sale of these assets were $16.9 million. The asset sale included a continuing supply agreement between Spartan Stores and the new owner; however, this supply agreement does not constitute a significant continuing involvement, as defined by SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." As such, the operations and discontinued cash flows of United have been eliminated from our ongoing operations.

          During the first quarter of fiscal 2004 we completed the sale of substantially all the assets of L&L/Jiroch Distributing Company and J.F. Walker Company to The H.T. Hackney Co. for approximately $40.8 million in cash and the assumption of certain liabilities.

          Insurance Operations. At March 26, 2005, we had approximately $4.0 million remaining in insurance reserves for open claim liabilities related to policies that were not ceded (transferred) to an unrelated third party. We will remain obligated under these policies until all claims are closed and have retained an independent third party administrator to manage these claims. We have not issued policies since December 31, 2001 and retain liability only for those policies issued prior to September 1, 2000. In fiscal 2003, we recorded a charge of $1.5 million for additional amounts required to be paid to an unrelated third party for claims liabilities previously ceded based upon updated actuarial studies reflecting a larger than originally anticipated obligation in accordance with the third party agreement. In fiscal 2005, a $1.2 million credit was recorded based upon better than anticipated claims results, which resulted in lower actuarial determined liabilities. Net loss from the insurance operations from the measurement date, January 2001, to March 26, 2005 totaled $2.1 million.

          Retail Operations. During fiscal 2005 we recorded provision for asset impairments and exit costs of $3.1 million, of which $1.7 million was for a pension withdrawal liability from a multi-employer pension plan affiliated with the former discontinued Food Town supermarkets. The liability will be paid over several years and we do not anticipate any further pension liabilities attributable to our discontinued operations. The remaining $1.4 million was recorded for additional store exit costs due to changes in our sublease assumptions.

          During fiscal 2003, we closed 15 retail stores and announced the closing of 13 of its Food Town retail stores principally located in Toledo, Ohio and outlying areas with the remaining 26 Food Town stores to be sold or closed. During fiscal 2004, we completed the sale of 24 Food Town stores for net proceeds of $42.1 million. Stores not sold were closed.

          Grocery Distribution Operations. We consolidated our Toledo, Ohio distribution operations into our Michigan facilities during the fourth quarter of fiscal 2003. As a result of the decision to exit the Food Town stores, the operations related to these facilities were classified as discontinued operations in the consolidated financial statements because the operations and cash flows of these facilities were substantially eliminated from ongoing operations. We continue to distribute to our The Pharm stores in Ohio from our distribution facilities in Michigan.

          Real Estate Operations. In fiscal 2004 and 2003, we sold properties representing substantially all of the remaining assets and operations of our former Real Estate segment; accordingly, we have reported the results of operations of the discontinued components of the Real Estate segment and the net gain (loss) on disposal as discontinued operations.

          Discontinued operations generated sales of $320.0 million and $1,279.8 million in fiscal 2004 and fiscal 2003, respectively. There were no sales in fiscal 2005. Total assets of discontinued operations were $6.1 million at March 26, 2005 and $8.3 million at March 27, 2004.

          For all years presented, the Consolidated Statements of Operations, Consolidated Statements of Cash Flows and all related financial and nonfinancial disclosures in the notes to the consolidated financial statements in this Annual Report on Form 10-K have been adjusted and the discontinued operations information is excluded, unless otherwise noted.

Critical Accounting Policies

          This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts. On an ongoing basis, we evaluate our estimates, which are based on historical experience and on various other assumptions and factors that we believe to be reasonable under the circumstances. We have discussed the development, selection and disclosure of these estimates with the Audit Committee. Based on our ongoing review, we will make adjustments as we consider appropriate under the current facts and circumstances.

          We believe that the following represent the more critical estimates and assumptions used in the preparation of our consolidated financial statements.

          Goodwill. In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," we are no longer recording amortization expense related to goodwill, and instead goodwill is reviewed for impairment on an annual basis. We adopted the provisions of SFAS No. 142 on March 31, 2002. A non-cash goodwill impairment charge of $35.4 million, net of provision for tax benefit of $6.2 million, was recorded in the Retail segment as a cumulative effect of a change in accounting principle in the first quarter of fiscal 2003. In the third quarter of fiscal 2003, we recorded an impairment charge of $45.0 million (including $1.8 million in discontinued operations), prior to tax benefit of $15.7 million, in the Retail segment.

          Fair value was determined based on the discounted cash flows and comparable market values of the segment. Determining market values using a discounted cash flow method requires that we make significant estimates and assumptions, including long-term projections of cash flows, market conditions and appropriate discount rates. Our judgments are based on historical experience, current market trends and other information. While we believe that the estimates and assumptions underlying the valuation methodology are reasonable, different assumptions could result in different outcomes. In estimating future cash flows, we rely on internally generated five-year forecasts for sales and operating profits, including capital expenditures and a 3% long-term assumed growth rate of cash flows for periods after the five-year forecast. We generally develop these forecasts based on recent sales data for existing operations and other factors. Based on our annual review during fiscal 2005 and fiscal 2004, no goodwill impairment charge was required to be recorded. No goodwill impairment charge would be required even if the current estimate of future discounted cash flows was 10% lower.

          Impairment of Long-Lived Assets Other Than Goodwill. Long-lived assets to be held and used are evaluated for impairment when events or circumstances indicate that the carrying amount of an asset may not be recoverable. When the undiscounted future cash flows are not sufficient to recover an asset's carrying amount, the fair value is compared to the carrying value to determine the impairment loss to be recorded. No material impairments for long-lived assets to be held and used were determined to exist for fiscal 2005, fiscal 2004 and fiscal 2003.

          Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value, less costs to sell. During fiscal 2004, asset impairment charges of $0.9 million were recorded in discontinued operations, prior to provision for tax benefit of $0.3 million. During fiscal 2003, asset impairment charges of $43.9 million (including $42.3 million in discontinued operations), prior to provision for tax benefit of $15.8 million, were recorded on assets at retail stores, office and warehouse facilities. The related assets are recorded in the Consolidated Balance Sheets as Property and equipment held for sale. Fair values are determined by independent appraisals, quotes or expected sales prices developed by internal real estate professionals. Estimates of expected sales prices are judgments based upon our experience, knowledge of market conditions and current offers received. Changes in market conditions, the economic environment and other factors can significantly impact these estimates. While we believe that the estimates and assumptions underlying the valuation methodology are reasonable, different assumptions could result in a different outcome.

          Exit Costs. We record exit costs for closed stores that are subject to long-term lease commitments based upon the future minimum lease payments and related ancillary costs from the date of closure to the end of the remaining lease term, net of estimated sublease rentals that could be reasonably obtained for the property. Future cash flows are based on contractual lease terms and knowledge of the market in which the closed store is located. These estimates are subject to multiple factors, including inflation, ability to sublease the property and other economic conditions. Internally developed estimates of sublease rentals are based upon the market in which the property is located, the results of previous efforts to sublease similar property and the current economic environment. Reserves may be adjusted in the future based upon the actual resolution of each of these factors. At March 26, 2005 exit costs of $15.5 million are recorded net of approximately $4.5 million of estimated sublease rentals. The following table provides the activity of exit costs for fiscal years 2005, 2004 and 2003:

          The unfunded portion of our defined benefit plans was $4.8 million and $3.2 million for fiscal 2005 and fiscal 2004, respectively. The increase in the unfunded balance during fiscal 2005 is a result of an increase in service cost primarily as a result of reinstating the accrual of service and transition credits and benefits paid in excess of actual return on plan assets and company contributions. The plan assets decreased by 5.0% primarily due to benefit payments during the year of $7.3 million partially offset by market gains on assets and company contributions of $5.2 million.

          Fiscal 2005 pension expense increased by $0.6 million from $1.5 million in fiscal 2004 to $2.1 million. Fiscal 2005 expense is higher primarily due to the reinstatement of the accrual of service and transition credits. Fiscal 2004 expense includes $2.2 million of settlement expense related to the retirement of our former Chief Executive officer, staff reductions and the sale of discontinued operations. The settlement expense was partially offset by expected return on plan assets in excess of service and interest costs, amortization and deferrals and curtailment income of $0.2 million.

Liquidity and Capital Resources

          The following table summarizes our consolidated statements of cash flows for fiscal 2005, fiscal 2004 and fiscal 2003 (in thousands):

          Net cash provided by operating activities increased during fiscal 2005 primarily due to increased earnings and favorable changes in working capital related to the timing of accounts payable and benefit accruals. The increase during fiscal 2004 was primarily due to the receipt of a tax refund associated with net operating loss carrybacks of $9.3 million in the first quarter of fiscal 2004 and lower losses from continuing operations. These improvements were offset by reductions in accounts payable due to changes in the timing of interest payments associated with our new bank financing and vendor payments.

          Net cash used in investing activities increased in fiscal 2005 due to increased capital expenditure activity. We spent as many capital dollars in fiscal 2005 as we had in the previous two fiscal years combined as our improved financial performance allowed us to reinvest in the business. Our Retail segment uses a majority, or 74.8%, 65.6% and 68.9% during fiscal 2005, fiscal 2004 and fiscal 2003, respectively, of our capital expenditure dollars. These capital expenditures were spent on our three new fuel centers, one major store remodel, the construction of in-store pharmacies, other minor remodels and merchandise resets and upgrades to our information systems. Under the terms of our credit facility, should our available borrowings fall below certain levels, our capital expenditures are restricted to $30.0 million in fiscal 2006, increasing to $35.0 million per year in fiscal 2007 and thereafter. We are not currently governed by these restrictions, as discussed below.

          Net cash used in financing activities includes cash paid and received from our long-term borrowings and the payment of financing fees associated with our new credit facilities. Our current maturities of long-term debt at March 26, 2005 are $2.8 million. Our ability to borrow additional funds is governed by the terms of our credit facilities, discussed below.

          Net cash provided by (used in) discontinued operations contains the net cash flows of our discontinued operations and consists primarily of net proceeds received on the sale of assets, net of identifiable debt repayments, the payment of store exit cost reserves, partial year operating results and the payment of severance and related benefit accruals of employees that previously worked for discontinued operations. We expect the cash usage of our discontinued operations will be approximately $3.0 million in fiscal 2006 for the payment of store exit costs and other liabilities.

          Our principal sources of liquidity are cash flows generated from operations and our amended $215.0 million credit facility. The credit facility matures December 2008, and is secured by substantially all of our assets. We had available borrowings of $78.9 million at March 26, 2005 and maximum availability of $88.9 million, which exceeds the minimum excess availability levels, as defined in the credit agreement.

          Prior to amending our credit facility in the third quarter of fiscal 2005 we had a $170.0 million senior secured revolving credit facility and a $15.0 million supplemental secured credit facility. The amended credit facility increased to $215.0 million from its original $170.0 million, increased the advance rates on certain assets, included a reduction in interest rates and extended the maturity by one year. A portion of the funds made available under the amended agreement were used to prepay without penalty the remaining $13.9 million due under the supplemental

secured credit facility. We recorded a pre-tax, non-cash charge of $0.6 million for the write-off of unamortized bank fees associated with the supplemental secured credit facility during the third quarter of fiscal 2005.

          Available borrowings under the credit facility are based on stipulated advance rates on eligible assets, as defined in the credit agreement. The credit facility contains covenants that include the maintenance of minimum EBITDA and maximum capital expenditures, as defined in the credit agreement. These covenants will not be effective as long as we maintain a minimum excess availability level, as defined in the credit agreement. The credit facility provides for the issuance of letters of credit of which $11.3 million were outstanding and unused as of March 26, 2005. The senior secured revolving credit facility bears interest at the London InterBank Offered Rate plus 1.75% or the prime rate (weighted average interest rate of 4.67% at March 26, 2005).

          The credit agreement which governs our credit facility does not allow us to make "restricted payments." "Restricted payments" include cash dividends, as well as redemption of shares and a variety of other types of payments as defined in the bank credit agreements, which are filed as an exhibit to this Form 10-K. The covenants in the bank credit agreements could allow for the payment of dividends in the future. However, we intend to use any net earnings generated from our operations, to repay debt and to acquire additional retail operations. We do not anticipate paying any cash dividends for the foreseeable future.

          Our current ratio decreased from 1.29:1.00 at March 27, 2004 to 1.21:1.00 at March 26, 2005 and our investment in working capital improved to $30.3 million at March 26, 2005 from $38.1 million at March 27, 2004. The reduced investment is the result of more effective working capital management.

          Our debt to total capital ratio at March 26, 2005 improved to 0.43:1.00 from 0.55:1.00 at March 27, 2004. The improvement was primarily due to the reduction in long-term debt of $34.0 million, including current maturities, during fiscal 2005 and the current year net earnings.

          Our total capital structure includes borrowings under our credit facility, various other debt instruments, leases and shareholders' equity. Management believes that cash generated from operating activities and available borrowings under the credit facility will be sufficient to support operations under current circumstances.

          The table below presents our significant contractual obligations as of March 26, 2005:

(1) The majority of our purchases involve supply orders to purchase products for resale in the ordinary course of business. These contracts are typically cancelable and therefore no amounts have been included in the table above. The purchase obligations shown in this table represent the amount of product we are contractually obligated to purchase to earn $3.3 million in upfront contract monies received that are recorded on the Consolidated Balance Sheet. If we do not fulfill these purchase obligations, we would only be obligated to repay the unearned upfront contract monies.

          In addition to the above, we expect to contribute $3.2 million to our defined benefit plans in fiscal 2006 to meet the minimum funding requirements.

New Accounting Standards

          In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123(R), "Share-Based Payment" that will require compensation costs related to share-based payment transactions to be recognized in the financial statements. With limited exceptions, the amount of compensation cost will be measured based on the grant date fair value of the equity or liability instruments issued. In addition, liability awards will be remeasured each reporting period. Compensation cost will be recognized over the period that an employee provides services in exchange for the award. SFAS No. 123(R) replaces SFAS No. 123, and supercedes Accounting Principles Board Opinion No. 25. This Statement becomes effective at the beginning of fiscal 2007. We expect that the impact of adopting the FAS No. 123(R) will be consistent with the pro forma expense that has been previously disclosed, adjusted for future grants, cancellations and exercises of stock options in accordance with the St atement.

          In May 2004, the FASB issued FSP FAS 106-2, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003." FSP FAS 106-2 provides guidance on the accounting, disclosure, effective date and transition rules related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003. FSP FAS 106-2 was adopted in the second quarter of fiscal 2005 and did not have a significant impact on the financial statements.

          We are exposed to industry related price changes on several commodities, such as dairy, meat and produce, that we buy and sell in both our Grocery Distribution and Retail segments.

          We are also exposed to interest rate risk on a portion of outstanding debt. The senior secured revolving credit facility bears interest at the London InterBank Offered Rate plus 1.75% or the prime rate (weighted average interest rate of 4.67% at March 26, 2005). An additional $0.7 million of our long-term debt is subject to fluctuations in the prime rate. The weighted average interest rates including loan fee amortization for fiscal 2005, fiscal 2004 and fiscal 2003 were 8.33%, 8.77% and 9.59%, respectively.

          We previously managed interest rate risk on a majority of our debt through the use of interest rate swap agreements that expired on June 30, 2003. We did not enter into new interest rate swap agreements at the expiration of the prior agreements.

          The estimated carrying value of long-term debt approximates its fair value at March 26, 2005 and March 27, 2004 due to variable interest rates that cover a majority of the long-term debt and a comparison of fixed rate debt to estimated rates that would currently be available for debt with similar terms and maturities. The following table sets forth the maturities of our debt outstanding as of March 26, 2005:

Board of Directors and Shareholders
Spartan Stores, Inc.
Grand Rapids, Michigan

          We have audited management's assessment, included in the accompanying Management's Report on Internal Controls over Financial Reporting, that Spartan Stores, Inc. and subsidiaries (the "Company") maintained effective internal control over financial reporting as of March 26, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.

          We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

          A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America (hereinafter referred to as "generally accepted accounting principles"). A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

          Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

          In our opinion, management's assessment that the Company maintained effective internal control over financial reporting as of March 26, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 26, 2005, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

          We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended March 26, 2005, of the Company, and our report dated May 3, 2005 expressed an unqualified opinion on those consolidated financial statements and financial statement schedule and included an explanatory paragraph relating to the Company's change in method of accounting for goodwill.

/s/ Deloitte & Touche LLP
Grand Rapids, Michigan
May 3, 2005

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Spartan Stores, Inc.
Grand Rapids, Michigan

We have audited the accompanying consolidated balance sheets of Spartan Stores, Inc. and subsidiaries (the "Company") as of March 26, 2005 and March 27, 2004, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended March 26, 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Spartan Stores, Inc. and subsidiaries as of March 26, 2005 and March 27, 2004, and the results of their operations and their cash flows for each of the three years in the period ended March 26, 2005, in conformity with accounting principles generally accepted in the United States of America.

As discussed in the notes to the consolidated financial statements, during the year ended March 29, 2003, Spartan Stores, Inc. and subsidiaries changes its method of accounting for goodwill (Note 2) to conform to Statement of Financial Accounting Standards No. 142.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of March 26, 2005, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated May 3, 2005, expressed an unqualified opinion on management's assessment of the effectiveness of the Company's internal control over financial reporting and an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

/s/ Deloitte & Touche LLP
Grand Rapids, Michigan
May 3, 2005

CONSOLIDATED BALANCE SHEETS

Spartan Stores, Inc. and Subsidiaries
(In thousands)

See notes to consolidated financial statements.

CONSOLIDATED BALANCE SHEETS (continued)

Spartan Stores, Inc. and Subsidiaries
(In thousands)

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF OPERATIONS

Spartan Stores, Inc. and Subsidiaries
(In thousands, except per share data)

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Spartan Stores, Inc. and Subsidiaries
(In thousands)